Moody's downgraded Atlas Iron because it's spending more than it earns

Iron ore. Image: Atlas Iron.

Moody’s Investors Service has downgraded Atlas Iron Limited’s corporate family rating and senior secured ratings to Caa3 from Caa1 because of very weak iron prices.

The rating agency said it believes the miner is spending more than it earns and may use up its cash reserves in the next few quarters.

The iron ore miner went into voluntary suspension on the ASX as the iron ore price slump hit the miner’s operations harder than expected.

Later Moody’s cut Atlas’s rating and put it on review for further downgrade.

Moody’s anaylst Saranga Ranasinghe said the downgrade reflects significant concerns about:

  • Atlas’s liquidity in the currently very weak iron ore price environment
  • The company’s ability to meet its financial obligations over the next 6 to 12 months.

“At current iron ore prices, which have plummeted to less than $50/ton in recent weeks, we believe that the company is generating negative operating cash flow which will likely use up its cash-on-hand over the next few quarters,” says Ranasinghe.

“The cost rationalisation initiatives taken by the company will help alleviate the liquidity challenges, but we do not believe they are sufficient to offset the negative impact of the currently very weak price environment.”

The company announced today that it has requested the suspension in the trading of its shares pending the outcome of review of the company’s operations, financial outlook, asset sale opportunities and capital structure.

Moody’s is considering the impact of the current iron ore price on Atlas’ ongoing financial viability as well as the company’s own review announced.

“Given the iron ore price and Atlas’ very weak credit profile, the ratings could be downgraded further,” Moody’s said.

In the 2014 financial year, Atlas shipped 10.9 million tonnes of iron ore and generated revenue of $1.1 billion.

Iron ore prices have fallen 24% to $US47.50 since Atlas released its half-year results on February 24.

For the six months to December, the company got an average price per tonne of $AU66.24 or about $US50 on current exchange rates. This compared to the $A116.6 average the company was getting the year before.

The best forecast Atlas has made for this year is that it can get costs down to $AU60 a tonne.

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